The clarification came just one day after the record for the largest number of option contracts traded in a single day was broken, and two days after the suspicious market activity of May 6, rumoured to have been triggered by an erroneous trade or glitch by a US bank.
In a statement on Saturday May 8, the CFTC warned that the rules apply throughout the day, and that any trader contravening the limits would break US laws.
“A trader whose position exceeds the applicable speculative position limit at any time during the day is in violation of the Commodity Exchange Act and the CFTC regulations, even if the position is subsequently reduced to a level within the applicable limit by the close of the market for that day,” the CFTC said.
On Friday May 7 the Options Clearing Corporation, the clearing house for US equity options, said 30.82m contracts were traded during the day, surpassing the previous record of 30.01m set on September 18, 2008, three days after Lehman Brothers collapsed.
Of the total, 28.25m were single stock options, exceeding the 27.33m traded on March 19.
The total trades on the day was nearly double the year-to-date average daily volume of 15.7m contracts.
The new record was achieved through 1,498,785 transactions, resulting in $12.06bn of premium changing hands, the OCC said.
Not surprisingly, it was also a record day for the Chicago Board Options Exchange. Some 10.57m contracts were made, surpassing the previous daily record of 9.98m on September 18, 2008.
A spokesperson for the CFTC said the timing of the position limit clarification was not connected to the previous day’s trading.
But the CFTC and the Securities and Exchange Commission said they were continuing to investigate the “unusual trading activity”.
“Since yesterday, we have been in regular contact with other financial regulators and our respective exchanges,” read a SEC and CFTC statement. “We also have been in touch with our foreign counterparts around the world.”
The two US regulators said their regulatory focus was centred on more than just the US markets, in order to scrutinise “the extent to which disparate trading conventions and rules across various markets may have contributed to the spike in volatility”.
The SEC and CFTC said the findings of their investigation into the irregular trading of May 6 would be made public, but that it was too early to say when.
Colin Packham, Sydney cpackham@fow.com